Introduction to topic
In this two- part article, a broad overview to frame working Strategic Vendor Management shall be covered.
In part one I shall deal with how SVM helps the organisation and how to know whether an SVM Programme is needed.
Defining Strategic Vendor Management
Strategic Vendor Management (SVM) aka Vendor Relations Management is the systematic, enterprise-wide assessment of suppliers’ strengths and capabilities centred on overall business strategy, determination of what activities to engage in with different suppliers, and the planning and execution of all interactions with suppliers, in a coordinated manner across the relationship life cycle. SVM maximizes the value realized through those interactions.
The objective of SVM is developing mutually beneficial two-way relationships with strategic supply partners. These relationships are focused on delivering greater levels of innovation, competitive advantage and reducing risk, than could ordinarily be achieved through a traditional, transaction based purchasing arrangement.
SVM is important to an organization’s success. Yet too often, even the most crucial vendor relationships are managed only tactically, usually reactively to events, or focusing only on product or service and associated cost (which technically is Supplier Performance Management, a subset of SVM), rather than on how the vendor effects the organisation’s ability to do business and develop in the long term.
Underpinning disciplines which support effective SVM includes supplier information management, compliance, risk management and performance management.
How does SVM help my organisation?
Most Procurement leaders struggle to improve relationships and convert their most important vendors into initiative-taking, collaborative, and innovative business partners that help them achieve their own departmental and organisational goals. When managed badly or lethargically, vendors often become complacent, slow moving and intractable.
SVM is a continuous process that aids both Procurement and organisational executives to achieve the above and to make better informed decisions concerning:
• Procurement spending and total Supply Chain based operational costing and overheads
• Reducing the number of vendors to a smaller manageable and value adding pool of competent strategic vendor partners
• Improved quality of both the vendor base and associated product buy-in’s
• Mitigating Procurement Risk and consequentially mitigating overall Organisational Risk
• Using the vendor base to aid in achieving internal Tactical and Strategic goals, aims, and ambitions about development and expansion of the organisation’s current market segment over the medium and long term.
• Opportunities for both Parties
How do I know if I need a SVM Programme?
A simple decisive test of the below indicators determines whether you need a SVM Programme:
• No meaningful value adding input from your vendor base.
• Number of negative and ongoing supply incidents within a given period within your vendor base.
• To many vendors for a specific product or service
• No defined or limited Vendor Risk Management Policy in place
• No emplaced and defined or limited Contract or Vendor Relations management programmes
Article Wrap up
In Part One of this Two Part Article I covered the importance of SVM, how it adds value to my organisation and to recognise whether one is needed.
In Part Two I will review the key components required to framework a value adding SVM methodology. Please join me next time.
Karl Furrutter is a Procurement and Capital Recovery specialist who operates in the consulting and interim management environment.